It’s OK, Google, as long as it works

I’ve watched the (in)famous Google video half way through. The part I’ve seen and heard includes opening remarks by Sergei Brin, Alphabet’s president, a brief talk by Sundar Pichai, Google’s CEO, and a likewise brief but emotional speech by Ruth Porat, Alphabet’s CFO.

Alphabet is a publicly traded company with a market cap of $820 billion. Google is its principal subsidiary. Institutional investors own 80% of Alphabet’s total stock; in particular, mutual funds hold 48%. However, neither the company’s president (who is also a director) nor the two senior executives mentioned shareholder value. There was no discussion of maximizing shareholder value under Trump’s presidency. There was not a mention of the fiduciary duty owed to shareholders by management and, indirectly, by employees.

At first, it seemed no less bizarre to me than Elon Musk’s attacks on sell-side analysts in May for their supposedly bearish view of the stock.

However, not mentioning doesn’t equal not caring. If I were to defend Sergey Brin’s team on their behalf to disgruntled investors, I’d probably offer this: “I always keep in mind the value of the stock, and that’s why I never forget how much our employees contribute to value creation. They are the firm’s core asset – talented and highly skilled but a finicky crowd. To stay productive, they have to believe they are working for a righteous cause. They are not immune to monetary stimuli, of course, – but doing good and being righteous is a sine qua non to their productivity. Mention stockholder value to them, and they’d think evil capitalism is taking over Google, and would melt down. Some would even take to bed with depression; others might leave for a socially conscious startup. We have to keep them in shape.”

OK, the likelihood of Page, Brin or Schmidt saying this to investors in about as high as the likelihood of their hiring me as their spokesman. (Even though I’m secretly hoping they are cynical rather than delusional.) In fact, they don’t have to worry about getting ousted by rebellious investors. Together, Page and Brin hold about 11% of Alphabet stock but, thanks to their Class B shares, they have 51% of the votes. Together with other top managers, they control 58% of the votes. Effectively, Brin and Page are President and CEO for life.

This said, there was an obvious reason why Alphabet investors accepted this arrangement in 2015, when the company was created out of a restructured Google. At the helm at Google, Page, Brin, Schmidt, et al. had a stellar record, simply put. They had earned virtually unlimited trust from Google’s investors. Besides, the bulk of Page’s and Brin’s wealth was, and still is, tied up in Alphabet stock, ensuring a near-perfect alignment of interest with the other investors.

Google’s results spoke for themselves. All the standard corporate mantras were superfluous. There here was no reason to recite them at the post-election meeting in November, 2016. There was no indication that what had worked in the previous decade would stop working once Trump moved into the White House. What seemed bizarre to me was merely business as usual at Google. But past performance is not a guarantee of future returns. Alphabet has done well since November 2016, but hasn’t outperformed the market. If Google becomes a “normal” company in terms of stock performance, who knows what corporate-speak its employers will have to endure at Big, Important meetings, say, ten years from now.

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